Showing posts with label RBI related information. Show all posts
Showing posts with label RBI related information. Show all posts

09 November 2016

Banks to remain open for public on Saturday, November 12 and Sunday, November 13, 2016

*Banks to remain open for public on Saturday, November 12 and Sunday, November 13, 2016* (So Banks working for next 4 days) …

10 September 2015

Sovereign Gold Bonds Scheme

The government today approved the Sovereign Gold Bonds Scheme, which was announced in the Budget 2015-16. As investors will get returns that are linked to gold price, the scheme is expected to reduce the demand for physical gold. The bonds will offer same benefits as physical gold.

They can be used as collateral for loans and can be sold or traded on stock exchanges as they are available in demat form. At the same time investors need not worry about holding physical gold.

The gold bonds will be issued by the Reserve Bank of India. Since these are Government of India bonds, they are sovereign.

The bonds will be denominated in grams of gold. Investors can pay money and buy these bonds from intermediaries, who will be announced later.

* The bonds can be purchased only by resident individuals or entities. There will be a cap on bonds that can be purchased. It could be 500 gms per person per year.

* The government will decide the rate of interest. The rate will be calculated on the value of the gold at the time of investment. It could be floating or fixed rate. The principal amount of investment, which is denominated in grams of gold, will be redeemed at the price of gold at that time. If the price of gold has fallen from the time that the investment was made, the depositor will be given an option to roll over the bond for three or more years.

* The bonds will be available both in demat and paper form. They will be issued in denominations of 5,10,50,100 gms of gold or other denominations

* The bonds will be issued and redeemed by banks, non-banking finance companies, National Saving Certificate (NSC) agents for a fee. This fee will be decided later

* The price of gold may be taken from the reference rate, as decided and the rupee equivalent amount may be converted at the RBI reference rate on issue and redemption. This rate will be used for issuance, redemption and Loan to Value purpose and disbursement of loans.

* The tenor of the bond could be for a minimum of five to seven years.

* These bonds can be used as collateral for loans. The LTV will be equal to that of ordinary gold loans. As per RBI regulations, the maximum LTV allowed for gold loans is 75 per cent.

* It will be possible to sell and trade the bonds on exchanges, in case investors want to redeem them before maturity. The KYC for the bonds is same as that for gold. Currently, if you purchase gold worth more than Rs 50,000 you have to show proof of KYC, such as PAN card, etc.

* Capital gains tax will be the same as for physical gold for individual investors. This means that short-term capital gains tax will apply if you sell within three years. The profits will be added to your income and taxed at income slab. Long term capital gains tax is 20 per cent with indexation.

04 September 2015

27 FAQs on Black Money Law

CBDT- Highlights of 27 FAQs on Black-money law amnesty scheme and download circular



If a public limited company makes a declaration then Directors of the company will not get immunity against offence punishable under SEBI Act or under IPC.
In case of an e-wallet or virtual card account online which is normally maintained for playing online games, it is similar to a bank account where inward and outward cash movement takes place. A declaration can be made in the manner prescribed for a bank account.
Whether a valuation report is to be filed along with a Declaration of a foreign asset the CBDT clarified that it is not necessary but the declarant should keep such a document used for arriving at the value of the asset.
If a person has from time to time transferred funds from his account to the accounts of his spouse or child whether the spouse or the child is also required to make a declaration, the CBDT has clarified that it is not required if no fund has been deposited in their account in addition to the ones done by the person.
If an employee makes a declaration of asset made out of income received from his employer, the employer shall be deemed to be an assessee in default u/s 201(1) for non-deduction of TDS, the CBDT has clarified that once declaration is made by the employee, the employer will escape the rigour of TDS but not the interest element and also the penalty.
Whether if a partnership firm makes declaration of undisclosed assets, partners will earn the immunity, the CBDT has clarified that partners shall be eligible for the immunity promised under the Scheme.
The Act will not provide immunity against punishable offence under SEBI Act/ Regulations or under IPC where disclosure is made under Chapter VI of the Act.
In case where a private trust (which has also set up a company holding 100% shares) is created outside India by a settlor out of undisclosed income, valuation of shares of the company should be made first as per Rule 3(1)(c) and then the value of net assets of the trust shall be determined.
A declarant will not be required to explain details of entries in foreign bank account at the time of declaration but is only expected to provide broad computatio

02 September 2015

Shah Report on MAT

Government Accepts Shah Panel Report, MAT Not to be Levied on FIIs

Finance Minister Arun Jaitley on Tuesday announced that the government has accepted Justice AP Shah Panel's recommendations on not levying MAT on Foreign Institutional Investors.
A. Highlights of speech

Here are the highlights of his speech.

  • Justice AP Shah Panel had submitted its report on MAT to government few weeks ago.
  • Certain questions which were in the mind of the CBDT were put forth to the MAT committee.
  • Justice AP Shah report on MAT to be made public soon.
  • Shah panel gave recommendations regarding levy of MAT On FIIs prior To April 1, 2015.
  • Have accepted the recommendations of the Justice Shah Panel on MAT.
  • Hope to move amendment to Tax Act in winter session of Parliament or whenever the next session is.
  • AP Shah report says MAT on capital gains made by FIIs was not applicable.
  • What applies post April 2015, that is no MAT on capital gain on FIIs, will also apply on pre-April 2015.

B. Recommendations of AP Shah Pane Committee

In view of the findings and upon a considered deliberation, we would like to make the following recommendations to the Government:

(i) To bring an amendment to Section 115JB of the Income Tax Act, 1961 clarifying the complete inapplicability of the MAT provisions to FIIs/FPIs; or

(ii) CBDT may issue a circular clarifying the complete inapplicability of the MAT provisions to FIIs/FPIs.

19 August 2015

RBI grants in-principle approval to 11 applicants for payment banks.

RBI grants in-principle approval to 11 applicants for payment banks.

1. Aditya Birla Nuvo Limited
2. Airtel M Commerce Services Limited
3. Cholamandalam Distribution Services Limited
4. Department of Posts
5. Fino PayTech Limited
6. National Securities Depository Limited
7. Reliance Industries Limited
8. Shri Dilip Shantilal Shanghvi
9. Shri Vijay Shekhar Sharma
10.Tech Mahindra Limited
11.Vodafone m-pesa Limited

 Do's of payments banks:

* Has to use the word ‘Payments Bank’ in its name to differentiate from other banks

* Accept demand deposits, i.e., current deposits, and savings bank deposits from individuals, small businesses and other entities

* To hold a maximum balance of Rs one lakh per individual customer.

* Will be allowed to set up branches, ATMs, BCs

* Allowed to issue debit cards also offer internet banking

* Can accept a large pool of money to be remitted but at the end of the day the balance should not exceed Rs one lakh

* Can accept remittances to be sent to or receive remittances from multiple banks

* Permitted to handle cross border remittance transactions in the nature of personal payments / remittances on the current account

* Allowed to distribute mutual fund products, insurance products and pension products

* Bank can also undertake utility bill payments

- Don'ts of payments banks:

* No NRI deposits should be accepted  

* Cannot issue credit card

* Not allowed to set up subsidiaries to undertake non-banking financial services activities  

* Other financial and non-financial services activities of the promoters should not be mingled with the working of payment banks

04 August 2015

RBI Credit Policy (04 July 2015)

RBI Credit Policy (04 July 2015): RBI keeps rate unchanged with Repo Rate at 7.25%; Reverse Repo Rate stands at 6.25%; CRR unchanged at 4%. Estimated GDP growth for FY16 @7.60%.

17 July 2015

New Guidelines on Concurrent Audit of Banks

RBI Issues New Guidelines on Concurrent Auditing at Branches



The Reserve Bank on Thursday said the concurrent audit at bank branches should cover at least half of their advances and deposits.

The concurrent audit system is regarded as part of a bank's early warning system to ensure timely detection of irregularities and lapses.

"Concurrent audit at branches should cover at least 50 per cent of the advances and 50 per cent of deposits of a bank," RBI said in a notification.

It said branches rated as high risk or above in the last risk-based internal audit (RBIA) or serious deficiencies found in internal audit are subject to concurrent audit.

The audit will also be applicable on all specialized branches like large corporate, mid corporate, exceptionally large/very large branches, SMEs and all centralised processing units like loan processing units (LPUs).

Besides, it would include service branches, centralized account opening divisions, wealth and portfolio management services, card products divisions, data centres and treasury/ foreign exchange business, investment banking, among others.

The concurrent audit also helps in preventing fraudulent transactions at branches.

The main role of concurrent audit is to supplement the efforts of the bank in carrying out simultaneous internal check of the transactions and other verifications and compliance with the procedures laid down, the RBI said.

The scope of concurrent audit should be wide enough or focused to cover certain fraud-prone areas such as handling of cash, deposits, advances, foreign exchange business, off-balance sheet items, credit-card business, Internet banking, it added.

The regulator said appointment of an external audit firm for concurrent audit may be initially for one year and extended up to three years, after which an auditor could be shifted to another branch, subject to satisfactory performance.

05 July 2015

Black Money Rules Notified

Black money: rules for valuation of foreign assets notified

Anyone having an undisclosed bank account abroad will now have to pay tax and a penalty on the sum of deposits made since opening the account, according to the rules notified for implementation of a one-time compliance window under the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015.
The rules also prescribe valuation norms for bullion and jewellery (including precious stones), immovable property, archaeological collections and paintings, shares (both listed and unlisted), as well as bank accounts.
The compliance window gives the account holder an opportunity to declare undisclosed assets abroad by September 30 and a further three months to pay the tax and penalty. The rate of tax will be 30 per cent, with an equal amount payable as penalty.
Once the window closes, the rate of tax will remain at 30 per cent but the penalty will be three times the tax — or 90 per cent — besides possible criminal prosecution and jail term.
For valuation of bank accounts, some safeguards have been provided to avoid double counting. It has been made clear that only fresh deposits since the date of opening will be taken into account and not the "proceed of withdrawal". For bullion, jewellery and precious stones, the value will be higher than the cost of acquisition. It will be the price that the said article would fetch if sold in the open market on the valuation date. The assessee can get the valuation done by a recognised government agency abroad or in India.
The same principles will be followed for valuing immovable property as well as archaeological collections, drawings, paintings and sculptures or work of art.

Shares & securities
For valuing shares and securities of listed entities, the rules envisage that the fair market value will be the higher of the cost of acquisition or average of the lowest and highest price on the date of valuation. The rules also provide a formula for calculating the fair market value of unquoted equity shares and provided a methodology for calculating the interest of a person in a partnership firm, association of persons or limited liability partnership.
The Reserve Bank's reference rate on the date of valuation will be used for converting the value of foreign assets and income into rupees. The rules also prescribe the format of notices to be sent to persons holding undisclosed assets and the format of appeals to the Commissioner (Appeals) and the Appellate Tribunal.
New rules of the game
1  Declaration to be sent to Commissioner of Income Tax (International Tax)-2, New Delhi
2  Assessee to be intimated by October 31 if I-T Department has any information in respect of the asset(s) declared
3 Revision of declaration permissible within 15 days of intimation sent by I-T Department
4  Tax and penalty to be paid by Dec 31, followed by acknowledgement to declarant

28 May 2015


Government amends FDI rules to allow NRIs to invest in India


The Union Cabinet on Thursday approved amendments to the Foreign Direct Investment (FDI) policy on investments by Non-Resident Indians (NRIs), Persons of Indian Origin (PIOs) and Overseas Citizen of India (OCIs) for greater forex remittances.

A decision in this regard was taken by the Cabinet Committee on Economic Affairs, headed by Prime Minister Narendra Modi.

The Cabinet "approved amendments to FDI policy on investments by NRIs, PIOs & OCIs. This will give PIOs & OCIs parity with NRIs in eco & edu (economy and education)," an official spokesperson said.

"The amendment in FDI for OCIs, NRIs & PIOs will lead to greater forex remittances & investment," he added.

As per the DIPP's proposal any investment made by NRIs. OCIs and PIOs from their rupee account in India, will not be treated as foreign investment.

An official said that the non-repatriable NRI funds would be treated as domestic investments.

The government wants to channelise the funds of NRIs, who now have set up large businesses abroad, by treating non-repatriable investments by NRIs as domestic investment.

The proposal was floated by the Department of Industrial Policy and Promotion to tap the NRIs for investments in defence, railways among other sectors. Last year, the government had formed a committee on this matter

Since coming to power in May last year, the Narendra Modi government has liberalised the FDI limit in crucial sectors like defence, insurance, real estate, railways and medical devices. The measures were aimed at improving India's ranking in the World Bank's Ease of Doing Business index, where India stands at 142 among 189 countries.

The measures could also be seen in the context of the Modi government allowing NRIs to vote through e-ballot system or proxy.

13 February 2015

Form A-1 Dispensed

A P (DIR Series)
76/RBI., Dated: February 12, 2015
Foreign Exchange Management Act, 1999 - Import of Goods into India
Attention of Authorised Dealer Category - I (AD Category - I) banks is invited to the A.P.(DIR Series) Circular No. 82 dated February 21, 2012 in terms of which applications by persons, firms and companies for making payments, exceeding USD 5,000 or its equivalent towards imports into India must be made in Form A-1.
2. To further liberalise and simplify the procedure, it has been decided to dispense with the requirement of submitting request in Form A-1 to the AD Category -I Banks for making payments towards imports into India. AD Category -I may however, need to obtain all the requisite details from the importers and satisfy itself about the bonafides of the transactions before effecting the remittance.
3. AD Category - I banks may bring the contents of this circular to the notice of their constituents and customers concerned.
4. The directions contained in this circular have been issued under Section 10 (4) and Section 11 (1) of the Foreign Exchange Management Act (FEMA), 1999 (42 of 1999) and are without prejudice to permissions / approvals, if any, required under any other law.
(C D Srinivasan)

Chief General Manager

17 January 2015

RBI Comments on Bank Auditors

RBI asks bank auditors to have a stringent monitoring process

Pointing to the gaps in the auditors' work, the Reserve Bank of India (RBI) has asked banks to adopt a more stringent auditing process to ensure that review of financial results and identification of fraud is done more promptly.

RBI Deputy Governor S S Mundra said there is a greater need to take a closer look into the asset quality, instances of restructuring of advances, provisioning held, etc. to ensure that there was no divergence with regard to asset classifications and provisions held.

"The point I am trying to make is that if RBI inspectors are able to identify these divergences in the limited time-frame that they are on-site, why the banks' auditors are not able to do so…Is it a question of efficiency of the auditors or is there a much deeper issue - something to do with the transparency of the process itself?," he asked while addressing members of the Audit Committee of the Boards (ACB) of ICICI Bank subsidiaries & other bank employees.

With regards to provisions, he told banks that adequate provisions should be made for post-retirement benefits like pension, gratuity and leave encashment, etc. and the auditors should ask more pertinent questions to the banks with regards to provisioning requirements

"It is important that the ACB asks the right questions to the management about various underlying assumptions that go into computation of the required provisions such as life expectancy, discount rate, expected return on investments, etc. I urge the ACBs to ask uncomfortable questions," he said in his speech.

In light of instances of know-your-customer (KYC) norms violation Mundra has urged auditors to be stricter with the process of background check. Last month, RBI had imposed penalties on ICICI Bank and Bank of Baroda for flouting KYC and anti money laundering norms.

"I believe that the absence of an appropriate punitive mechanism in the banks for lapses has also contributed to their recurrence. Therefore, our expectations from the ACBs would be to closely focus on reasons for such regulatory penalties/sanctions and seek a root-cause analysis for preventing recurrence," he added.

RBI has also been cautioning consumers against the rising case of credit card and other frauds. Mundra called upon greater sensitivity and increased focus from auditors with regards to having appropriate measures in place to prevent instances of fraud.

"In our recently concluded scrutiny into fixed deposit related frauds in some banks, it emerged that even the caution advices issued by RBI in respect of certain individuals had not percolated down to the branch officials quickly enough to enable appropriate preventive measures… I would say that ACBs should take upon themselves to monitor the trend of frauds, assimilate key learnings and ensure that mitigation measures are put in place by the management," he added.


Source: BS

26 November 2014


RBI allows ECB borrowers to park ECB proceeds in fixed deposits for 6 months pending their utilization

November 24, 2014


A.P. (DIR Series 2014-15) Circular No. 39, DATED 21-11-2014

Attention of Authorized Dealer Category - I (AD Category- I) banks is invited to A.P. (DIR Series) Circular No. 52 dated November 23, 2011 relating to parking of proceeds of External Commercial Borrowings (ECB).

2. At present, eligible ECB borrowers are required to bring ECB proceeds, meant for Rupee expenditure in India for permitted end uses, such as, local sourcing of capital goods, on-lending to Self-Help Groups or for micro credit, payment for spectrum allocation, etc., immediately for credit to their Rupee accounts with AD Category - I banks in India.

3. With a view to providing greater flexibility to the ECB borrowers in structuring draw down of ECB proceeds and utilisation of the same for permitted end uses, it has been decided to permit AD Category -I banks to allow eligible ECB borrowers to park ECB proceeds (both under the automatic and approval routes) in term deposits with AD Category- I banks in India for a maximum period of six months pending utilisation for permitted end uses. The facility will be with the following conditions:



The applicable guidelines on eligible borrower, recognised lender, average maturity period, all-in-cost, permitted end uses, etc. should be complied with.



No charge in any form should be created on such term deposits i.e. to say that the term deposits should be kept unencumbered during their currency.



Such term deposits should be exclusively in the name of the borrower.



Such term deposits can be liquidated as and when required.

4. The amended ECB policy will come into force with immediate effect and is subject to review. All other aspects of ECB policy would remain unchanged.

5. AD Category banks may bring the contents of this circular to the notice of their constituents and customers.

6. The directions contained in this circular have been issued under sections 10(4) and 11(1) of the Foreign Exchange Management Act, 1999 (42 of 1999) and are without prejudice to permissions / approvals, if any, required under any other law.


20 September 2014

RBI eases FDI norms on issue of equity shares

The Reserve Bank of India (RBI) has eased foreign direct investment (FDI) norms, allowing Indian companies to issue shares/convertible debentures to a person resident outside India against any payables, subject to certain conditions like entry route, sectoral cap, pricing guidelines and compliance with the applicable tax laws.

As of now an Indian company may issue shares/convertible debentures under the automatic route to a person resident outside India against lump-sum technical know-how fee, royalty, external commercial borrowings (ECBs) (other than import dues deemed as ECB or Trade Credit as per RBI guidelines) and import payables of capital goods by units in Special Economic Zones subject to certain conditions like entry route, sectoral cap, pricing guidelines and compliance with the applicable tax laws.

As per the new norms, such equity shares can be issued against any other funds payable by the investee company, remittance of which does not require prior permission of the government or RBI under FEMA.

The riders being that the shares shall be issued in accordance with the extant FDI guidelines on sectoral caps and pricing guidelines, etc.

Also, the issue of equity shares under this provision shall be subject to tax laws as applicable to the funds payable and the conversion to equity should be net of applicable taxes.

The relevant circular is enclosed for reference.

Hope you find the update useful.

Note: The above update is just for reference and does not constitute an advice or an opinion.  As always, professional assistance is highly recommended before acting on the above.

Warm Regards,


CA. Pravesh Kumar M
Kumar & Associates

31 August 2014

Important information regarding credit score ( CIBIL)

Important information regarding credit score
( CIBIL) :
With banks and RBI becoming more and more stringent about the loan eligibility of borrowers, you are probably aware by now that it is imperative for you to have a good Cibil score in order to qualify for a loan with an attractive rate of interest. In order to obtain a good Cibil score, you need to maintain a good credit history, the details of which will show up in your Cibil report. The Cibil score can, therefore, be compared to a grade or a rank based on how you have been servicing your credit.


Now that you know the link between your credit history and credit score, you are naturally keen to do all you can to keep your Cibil credit score as high as possible. But have you ever wondered what goes into the constitution of your Cibil score? Here is a lowdown on the factors that have the greatest impact on your Cibil score.

Your repayment history (35%)

The first and most important thing that impacts your credit score is your repayment history and it accounts for 35% of your credit score. You need to clear all your bills and loan repayments well within the dates stipulated in order to maintain a good repayment history. Even a single default has a negative impact on your score.

What you owe your lenders (30%)

There are two basic considerations when it comes to calculating what you owe your lender, which is referred to as credit utilization. First is the total of your credit card limits sanctioned to you and secondly, the percentage of your money you are utilizing. Hence, your credit utilization ratio is calculated as balance outstanding on all your credit cards as a percentage of total credit limit on all your credit cards. If your credit utilization ratio is upwards of 30%, you profile as a customer is considered to be "risky."

How long have you been servicing debt (15%)

This may come as a surprise, but the amount of time you have been using credit also has an important bearing of 15% on your credit score. Therefore, if you have been servicing debt for a longer period of time and handling it responsibly, i.e., by making timely repayments, it is going to have a positive impact on your Cibil score.

The amount of new credit you have taken or applied for (10%)

Every time you apply for a new credit such as a loan or credit card, the banks and other financial institutions run an inquiry on your Cibil report to check your credit history to find out about your financial health and repayment capability. If there have been too many such inquiries on your Cibil report, it has a negative bearing on your credit score. This factor has a 10% weightage when it comes to calculating your credit score.

The mix of credit (10%)

Even though ours is primarily an EMI-led generation, Indians are, by nature, averse to the idea of credit. So if you have been avoiding credit like the plague and have a single type of credit, you cannot have a good credit score, especially if you have only unsecured loans like credit cards or a personal loan. This factor has a bearing of 10% on your Cibil score. In order to score high on this ground, you must have a healthy mix of credit comprising of secured and unsecured loans and have the ability to service them well in time. Those with a mix of various credit types such as mortgage, personal loan, car loan, credit card, etc are likely to score higher than those who have a single type of credit.

Now that you know what goes into the constitution of your credit score, you can use this information to find out the areas in which you are lagging, and thus improve your credit score. A good credit score will ensure that you get a loan without any hassles at best interest rates when you really need one.

15 August 2014

Amendment to LRS

Date: Aug 11, 2014
Liberalised Remittance Scheme for resident individuals-clarification (Corrected)

A. P. (DIR Series) Circular No. 19

August 11, 2014

    All Category - I Authorised Dealer Banks

Madam / Sir,

Liberalised Remittance Scheme for resident individuals-clarification

Attention of Authorised Dealer Category-I (AD Category-I) banks is invited to A.P. (DIR Series) Circular No. 5 dated July 17, 2014, in terms of which it was clarified that the Scheme can also be used for acquisition of immovable property outside India.

2. In the light of the above clarification, the requirement of post facto reporting stipulated in terms of A.P. (DIR Series) Circular No.32 dated September 04, 2013, (Sr. no. 4 of Annexure to the Circular) stands withdrawn.

3. The directions contained in this Circular have been issued under Section 10 (4) and 11 (1) of the Foreign Exchange Management Act, 1999 (42 of 1999) and are without prejudice to permissions/approvals, if any, required under any other law.

Yours faithfully,

(C. D. Srinivasan)
Chief General Manage

05 August 2014

RBI Monetary Policy-2014-15

Third Bi-Monthly Monetary Policy Statement, 2014-15

Dr. Raghuram G Rajan, Governor

Monetary and Liquidity Measures

On the basis of an assessment of the current and evolving macroeconomic situation, it has been decided to:

  • keep the policy repo rate under the liquidity adjustment facility (LAF) unchanged at 8.0 per cent;

  • keep the cash reserve ratio (CRR) of scheduled banks unchanged at 4.0 per cent of net demand and time liabilities (NDTL);

  • reduce the statutory liquidity ratio (SLR) of scheduled commercial banks by 50 basis points from 22.5 per cent to 22.0 per cent of their NDTL with effect from the fortnight beginning August 9, 2014; and

  • continue to provide liquidity under overnight repos at 0.25 per cent of bank-wise NDTL  and liquidity under 7-day and 14-day term repos of up to 0.75 per cent of NDTL of the banking system.

Consequently, the reverse repo rate under the LAF will remain unchanged at 7.0 per cent, and the marginal standing facility (MSF) rate and the Bank Rate at 9.0 per cent.

CBDT Circular on SEZ

SEZ tax holiday setback continues

By Ameya Kunte



It is learnt that CBDT has recently issued a circular which is likely to have a huge negative impact on tax holiday enjoyed by SEZ units in IT sector. The circular states that transfer of people from an existing-unit to a new SEZ unit in the first year of business will not be treated as splitting up or reconstruction of an existing business, provided such transfer does not exceed 20% of total technical manpower headcount actually engaged in software development in SEZ unit. This clarification will not only affect new SEZ unit set-ups, but will also impact tax holiday claims of past years resulting into a litigation.

SEZ which are considered as growth engines of the economy have suffered tax blows in the recent past. SEZs that were promised a complete tax holiday, have been hit with Minimum Alternate Tax (MAT). Contrary to the expectations of relief from Budget 2014, the Finance Minister defended MAT on SEZ citing that "removal of MAT from SEZ developers and units had no justification vis-à-vis other sectors of economy which were liable to pay MAT". FM has also stated that MAT paid is available as credit. However, almost 20% cash outflow on MAT does have significant negative impact on SEZ project's IRR. In 2014 Budget, the Government also clarified that SEZ claiming investment-linked tax benefit (u/s Sec 35AD) will not be eligible for tax holiday u/s 10AA and vice-versa, thus further curtailing tax incentive available to SEZ.
I think Government ought to clarify policy on SEZ scheme on an overall basis & tax is an integral part of it. Else, tax set-backs will surely continue to reduce SEZ attractiveness and drive investors out of SEZ scheme.

18 July 2014

Payment Banks and Small Banks

RBI releases Draft Guidelines for Licensing of Payments Banks and Small Banks

The Reserve Bank of India released on its website today, the Draft Guidelines for "Licensing of Payments Banks" and Draft Guidelines for "Licensing of Small Banks". The Reserve Bank has sought views/comments on the draft guidelines from all interested parties and general public. Suggestions and comments on the draft guidelines may be sent by August 28, 2014 to the Chief General Manager, Reserve Bank of India, Department of Banking Operations and Development, Central Office, 13th floor, Central Office Building, Shahid Bhagat Singh Marg, Mumbai-400001 or can be emailed by clicking here.

Final guidelines will be issued and the process of inviting applications for setting up of Payments Banks and Small Banks will be initiated after receiving feedback, comments and suggestions on the draft guidelines.

Both, payments banks and small banks are "niche" or "differentiated" banks; with the common objective of furthering financial inclusion. While small banks will provide a whole suite of basic banking products, such as, deposits and supply of credit, but in a limited area of operation, payments banks will provide a limited range of products, such as, acceptance of demand deposits and remittances of funds, but will have a widespread network of access points particularly to remote areas, either through their own branch network or through Business Correspondents (BCs) or through networks provided by others. They will add value by adapting technological solutions to lower costs.

The entities eligible to set up a Payments Bank include existing non-bank Pre-paid Instrument Issuers (PPIs), Non-Banking Finance Companies (NBFCs), corporate BCs, mobile telephone companies, super-market chains, companies, real sector cooperatives, and public sector entities. The entities eligible to set up a small bank include resident individuals with ten years of experience in banking and finance, companies and societies, NBFCs, Micro Finance Institutions and Local Area Banks.

The eligible entities should be "fit and proper" in order to be eligible to promote payments banks and small banks. The Reserve Bank would assess the 'fit and proper' status of the applicants on the basis of their past record of sound credentials and integrity; financial soundness and successful track record of at least five years in running their businesses.

The minimum paid up capital requirement of both payments banks and small banks is kept at Rs. 100 crore, of which the promoters' initial minimum contribution will be at least 40 per cent, to be locked in for a period of five years. Shareholding of the promoters should be brought down to 40 per cent within three years, 30 per cent within a period of 10 years, and to 26 per cent within 12 years from the date of commencement of business of the bank.


The Reserve Bank last came out with a set of guidelines for licensing of new banks in the private sector in February 2013. The process of licensing culminated with the announcement by the Reserve Bank (Press Release dated April 2, 2014) that it would grant "in-principle" approval to two applicants who would set up new banks in the private sector within a period of 18 months.

While announcing the decision to grant "in-principle" approval to the two applicants, the Reserve Bank also indicated that going forward, it intends to use the learning experience from this licensing exercise to revise the guidelines appropriately and move to grant licences more regularly. Further, the Reserve Bank would work on a policy of having various categories of "differentiated" bank licences which will allow a wider pool of entrants into banking.

Further, in the Union Budget 2014-2015 presented on July 10, 2014, the Hon'ble Finance Minister announced that:

"After making suitable changes to current framework, a structure will be put in place for continuous authorization of universal banks in the private sector in the current financial year. RBI will create a framework for licensing small banks and other differentiated banks. Differentiated banks serving niche interests, local area banks, payment banks etc. are contemplated to meet credit and remittance needs of small businesses, unorganized sector, low income households, farmers and migrant work force".

Taking into account the above, the draft guidelines on payments banks and small banks as differentiated or restricted banks have been prepared. The Reserve Bank is working on the guidelines for continuous authorisation of universal banks and will come out with these separately.

Alpana Killawala
Principal Chief General Manager

Press Release: 2014-15/121

RBI-LRS-Immovable Property Outside India

Date: Jul 17, 2014
Liberalised Remittance Scheme (LRS) for resident individuals-Increase in the limit from USD 75,000 to USD 125,000

A.P. (DIR Series) Circular No.5

July 17, 2014


All Category – I Authorised Dealer Banks

Madam/ Sir,

Liberalised Remittance Scheme (LRS) for resident individuals-Increase in the limit from USD 75,000 to USD 125,000

Attention of Authorised Dealer Category-I (AD Category-I) banks is invited to the guidelines regarding the Liberalised Remittance Scheme (LRS) for Resident Individuals (the Scheme).

2. It was decided vide A.P.(DIR Series) Circular No. 138 dated June 3, 2014, to increase the limit to USD 125,000 per financial year (April-March) from USD 75,000. Accordingly, AD Category –I banks have been allowed to remit up to USD 125,000 per financial year, under the Scheme, for any permitted current or capital account transaction or a combination of both. Further, it is clarified that the Scheme can now be used for acquisition of immovable property outside India.

3. All other terms and conditions mentioned in A.P.(DIR Series) Circular No. 64, dated February 4, 2004, A.P.(DIR Series) Circular No. 24 dated December 20, 2006, A.P.(DIR Series) Circular No.51 dated May 8, 2007, A.P.(DIR Series) Circular No.36 dated April 4, 2008, A.P.(DIR Series) Circular No.17 and 18 both dated September 16, 2011, A.P.(DIR Series) Circular No.106 dated May 23, 2013, A.P.(DIR Series) Circular No.24 dated August 14, 2013 and A.P.(DIR Series) Circular No. 138 dated June 3, 2014, shall remain unchanged.

4. Reserve Bank has since amended the Principal Regulations through the Foreign Exchange Management (Permissible Capital Account Transaction) (Amendment) Regulations, 2014 notified vide Notification No. FEMA 311/2014-RB dated June 24, 2014 c.f. G.S.R. No. 488 (E) dated July 11, 2014.

5. AD-Category I banks may bring the contents of this circular to the notice of their constituents and customers concerned.

6. The directions contained in this Circular have been issued under Section 10(4) and 11(1) of the Foreign Exchange Management Act, 1992 (42 of 1999) and are without prejudice to permissions/approvals, if any, required under any other law.

Yours faithfully,

(C. D. Srinivasan)
Chief General Manager

19 June 2014

Annual Return-FLA

Date: Jun 18, 2014
Annual Return on Foreign Liabilities and Assets Reporting by Indian Companies – Revised format

A .P.(DIR Series) Circular No. 145

June 18, 2014

All Category - I Authorised Dealer Banks

Madam / Sir,

Annual Return on Foreign Liabilities and Assets
Reporting by Indian Companies – Revised format

Attention of the Authorised Dealer Category – I banks is invited to A.P. (DIR Series) Circular No.133 dated June 20, 2012 which stipulated that all Indian companies which have received FDI and/or made FDI abroad in the previous year(s) including the current year, should file the annual return on Foreign Liabilities and Assets (FLA) in the soft form to the Reserve Bank by July 15 every year.

2. In order to collect information on Indian companies' Outward Foreign Affiliated Trade Statistics (FATS) as per the multi-agency global 'Manual on Statistics of International Trade in Services', the FLA return has been modified marginally and is made available on the RBI website ( → Forms category → FEMA Forms) along with the related FAQs ( → FAQs category → Foreign Exchange).

3. Reserve Bank has since amended the subject Regulations accordingly through the Foreign Exchange Management (Transfer or Issue of Security by a Person Resident outside India) (Eighth Amendment) Regulations, 2014 which have been notified vide Notification No. FEMA.307/2014-RB dated May 26, 2014, vide G.S.R. No. 400(E) dated June 12, 2014.

4. The directions contained in this circular have been issued under sections 10(4) and 11(1) of the Foreign Exchange Management Act, 1999 (42 of 1999) and is without prejudice to permissions / approvals, if any, required under any other law.

Yours faithfully,

(J. K. Pandey)
General Manager - Officer-in-Charge

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